Retail shortness of breath increases industry inventory and hampers economic resumption

Brazil faces a chain problem in the face of the weakness of the economy. With a modest consumption performance and still high unemployment, the retail is breathless and buys increasingly fewer of the industry, which suffers from an unwanted increase in stocks in recent months. The result of this perverse combination is that a resumption of activity is further distant. With trade buying less, the industry will have to eliminate surplus stocks before resuming production so as to return to contributing to an improvement in economic activity. Over 2019, retail and industrial industry performance has disappointed and analysts have already projected a growth of less than 1% for this year's gross domestic product (GDP). The volume of retail purchases has declined since March, according to a survey by the Brazilian Institute of Economics, Fundação Getúlio Vargas (Ibre/FGV). In June, in the last cleared number, it reached the lowest level since September last year. The analysis of this indicator shows that retail has been betting on a resumption of the Brazilian economy. In January and February, the volume of orders from the sector to the industry reached the highest level since the mid-2013, so before the Brazilian recession began. "There was a stronger advance (of the volume of orders) after the electoral period, but the weak data of the economy ended up frustrating this expectation," says the coordinator of the Ibre/FGV trade survey, Rodolpho Tobler. In São Paulo, in the largest commercial center in the country, the adjustment movement is evident. There are increasingly entrepreneurs opting to maintain a stock level below the ideal because of the weakness of consumption. In June, 13.7% of the entrepreneurs declared they had stocks below the appropriate. In May, there were 11.6%, according to the Federation of Trade in Goods, services and tourism (Fecomércio-SP). "All indicators point to a smaller sale than expected and retailers are adjusting stocks down. The entrepreneur knows that the scenario is bad and is adjusting the requests, but it is not a good sign for the economy, "says Guilherme Dietzer, economic advisor to the entity. Owner of a uniform store in the central region of São Paulo, Aldo Macri is one of the traders who lowered the quantity of products in stock. "I have enough for about 15 days, 20 days of the month. If the gear goes back to walking again, I want to have for 60, "he says. He tells that he has been experiencing difficulty in finding prompt-delivery on the market the items he resents and also the fabrics and aviations he uses to manufacture the articles of his own production. "I haven't seen a profit in two years, I'm surviving. I didn't fire any employees, but I cut a lot of expenses. I lowered the profit margin, mainly in bids, had two cars, now I only have one, I reduced the family lunches of weekend, "he says. The company of MACRI, the Jomal uniforms, sells mainly military attire, but also manufactures trousers and shirts for civilians, parts for bands and costumes for theater and samba schools. The business was founded in 1973 by Aldo's parents. "The time is margin reduction, low price, promotion. The most important [for the retailer] is now to generate cash flow, pay supplier and taxes and sustain itself during this turbulence without indebtedness, "says Dietzer, from Fecomercio. Stock increases in industry In the production chain, the industry directly feels the impact of this loss of dynamism from retail. The relationship is straightforward: if the stores order less, the products become stranded in the manufacturers. The stocks in the sector have been advancing for five months and evidence this adverse scenario, according to the National Confederation of Industry (CNI). The entity measures stocks on a scale from zero to 100. If the indicator exceeds 50 points, it is an indication of inventory accumulation in relation to what was planned. In May of this year, the indicator reached 51.6 points, higher level in one year – only below the score in the same month last year (53.3 points), when the economy was shaken by the truckers ' strike. "We see with some attention this accumulation of stocks," says CNI economist Marcelo Azevedo. "It is not an absurd growth, as occurred at the worst moment of the crisis, but it is an impeditive to a stronger recovery of the economy." The textile industry is one of the most suffering with the accumulation of stopped parts. In May, the level of stocks determined by the CNI for the sector remained at 56 points for the second consecutive month. In addition to the slowdown in the economy, the sector suffered from the climatic unforeseen: the less rigorous winter left much of the heavier clothes stranded. "In January and February, the economy was bad, but from March the demand became weaker and, moreover, the country has a weak winter and it is not leading to a replacement of garments," says the president of the Brazilian Association of Textile and Confecç industry (Abit), Fernando Pimentel. In a scenario of such uncertainty with the performance of the economy, industrial entrepreneurs have been obliged to make daily control of stocks in the face of rising and descending retail demand. "In April, May and June, sales were pifias, so it's obvious that I've accumulated stocks," says the industrial director of Darling Confecções, Ronald Masijah. "I had to readequate my stock in relation to what I predict is going to happen. Now, I'm decreasing production a little bit at this point because I have stock. " Masijah is part of the second generation of the family in charge of the company, which produces lingeries. "Our company has existed for 70 years and we have never seen a crisis like the current one," says the entrepreneur.